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"Fed In A Box" - Vince Reinhart's FOMC Probability Matrix

Tyler Durden's picture




 

Since the only topic on everyone's mind until 1:59:59:9999 pm today (excluding those who have been leaked the FOMC decision in advance of course) will be what the Fed will do, here are some additional perspectives from former FOMC secretary and economist Vince Reinhart (currently at Morgan Stanley), who believes nothing happens today as the Fed has "boxed" itself in, and his Fed Statement Probability Matrix.

But first, here is why to Reinhart, the Fed is (has been, continues to be) in a box:

Here is the box Fed officials have made for themselves. They have to continue the language that they are willing to increase or decrease monthly asset purchases, as it is evidence of their data-dependent flexibility. But if the only new data point is that inflation fell and risks becoming unanchored, it would seem odd to decrease purchases right away. Not acknowledging the inflation fall, thereby ignoring a yawning shortfall from their dual mandate, risks ridicule.

 

The solution is likely to be an unsatisfying combination of admitting the inflation result, asserting that inflation expectations remain anchored, and repeating that QE is a flexible tool. Indeed, expect Chairman Bernanke to be painfully evenhanded toward QE. This may make it seem like they are ready to start tapering imminently. Not so. Look for even more talk first. They need to roll out their revised exit strategy, probably working through the argument at the semiannual monetary policy hearings, and see that inflation settles down. This puts QE in play for the September meeting at the earliest, and if our forecast eventuates, subdued inflation could stay the Fed’s hand even longer.

And the probability matrix: "The table below provides some possible wording language, starting from
the words of the May statement that may be in play. Strikeouts indicate
deletions and bold face indicates insertions."

 

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Wed, 06/19/2013 - 10:26 | 3671239 Headbanger
Headbanger's picture

Blue or red pill?

Wed, 06/19/2013 - 10:27 | 3671243 Gandalf6900
Gandalf6900's picture

chill pill

Wed, 06/19/2013 - 10:39 | 3671276 Doña K
Doña K's picture

Prepare to read new words with undecipherable multi-meanings and Greenspans favored word "conundrum"

In plain Engish and as the article suggests we are "boxed-in" or "no-way-out" Bitzes is optional

Wed, 06/19/2013 - 10:51 | 3671317 ACP
ACP's picture

Just like a Jack in the Box. Turn the handle and a clown pops out.

Wed, 06/19/2013 - 12:37 | 3671834 BigJim
BigJim's picture

Markets become still... and wait breathlessly for the gnomic pronouncements of an unelected group of bureaucrats, before recommencing the vital economic task of price discovery.

Modern 'capitalism' at its finest. 

Wed, 06/19/2013 - 10:58 | 3671326 smlbizman
smlbizman's picture

my mistake

 

Wed, 06/19/2013 - 11:09 | 3671378 WillyGroper
WillyGroper's picture

I'll have a drip, please.

Wed, 06/19/2013 - 10:42 | 3671284 Silveramada
Silveramada's picture

Ben can't pull the oxygen dose of 85B /month, they need to pump stocks s&p and bonds to get all the suckers into this big melting pot, investors fondue coming, they are also recruting for PM's shorts and they are going to slaughter also them...but when the time is ripe, they are all jumping into long PM s position and both of the cat. will be screw in the WS tradition...

http://zysites.com/silververitas/

Wed, 06/19/2013 - 11:10 | 3671387 Groundhog Day
Groundhog Day's picture

BLUE PILL PLEASE!  I was dumber but happier, naive and in bliss.  Now, everywhere i go I see the fraud immediately, makes me sick to my stomach. 

Wed, 06/19/2013 - 11:25 | 3671479 NotApplicable
NotApplicable's picture

I try to use it as motivation to make myself stronger (in every sense of the word), as I know I am the best chance my family has to survive and prosper in spite of this world filled with criminality.

Tu ne cede malis sed contra audentior ito!

 

Wed, 06/19/2013 - 12:29 | 3671783 Cosmicserpent
Cosmicserpent's picture

So, your family is fucked then?

Wed, 06/19/2013 - 10:27 | 3671242 Gandalf6900
Gandalf6900's picture

whats the probability that this casino probably implodes

Wed, 06/19/2013 - 10:30 | 3671254 LawsofPhysics
LawsofPhysics's picture

100%, it's the timeline and consequences that are difficult to predict.  hedge accordingly.

Wed, 06/19/2013 - 10:41 | 3671282 Bay of Pigs
Bay of Pigs's picture

OT, we now know that the CFTC won't be doing anything about banking "reforms" anytime soon.

"The agency's tack is now more in question than at any time since Gary Gensler became chairman four years ago. He and one or two others on the five-member commission may be replaced as soon as July, lobbylists and commission officials say. This could slow or reverse Mr Gensler's clampdown on Wall Street banks". (emphasis mine).

(FT via GATA)   http://www.gata.org/node/12699

Clampdown? HAHAHA...

Wed, 06/19/2013 - 11:29 | 3671500 NotApplicable
NotApplicable's picture

The only clampdown I've seen out of Gensler is reminiscent of Goatse.

I'm guessing this means that Amanda Renteria is going to be far more "receptive."

Wed, 06/19/2013 - 10:30 | 3671251 The Master
The Master's picture

Can Goldman Sachs just release a table with the 100% probability of what's actually going to happen and spare us the melodrama?  Thanks.

Wed, 06/19/2013 - 10:30 | 3671255 SheepDog-One
SheepDog-One's picture

Option 4- Usual word cloud of Goldilocks nonsense so nothing to see here, resume normally scheduled pumping of indexes.

Wed, 06/19/2013 - 10:37 | 3671274 Spastica Rex
Spastica Rex's picture

They should conduct their meetings in Latin. Only allow cameras to show the backs of their heads while they're speaking. Now that would be impressive.

Wed, 06/19/2013 - 10:31 | 3671258 Devotional
Devotional's picture

if there is a gold smackdown before the FOMC meeting, I am buying a Krugerrand.

Wed, 06/19/2013 - 10:45 | 3671301 unwashedmass
unwashedmass's picture

silver here   already have picked out bars

Wed, 06/19/2013 - 10:34 | 3671268 SheepDog-One
SheepDog-One's picture

Vince Reinhart, yet another 'Taperist, PhD'.

Wed, 06/19/2013 - 10:38 | 3671275 Fiat Burner
Fiat Burner's picture

For christ's sake, a "Fed Statement Probability Matrix"???  Fucking disgusting how the entire market hangs on the words of these criminals. 

Wed, 06/19/2013 - 10:44 | 3671296 LawsofPhysics
LawsofPhysics's picture

Agreed, there is no market for true price discovery.  Only one thing is certain in this "debt is money" criminal cabel.  Sovereign debt must expand or fiat money dies along with their power and control over resources (which is what this is really about).

Wed, 06/19/2013 - 10:52 | 3671321 CHX
CHX's picture

For now price discovery does depend on what the FED does, like it or not.

Wed, 06/19/2013 - 11:22 | 3671458 LawsofPhysics
LawsofPhysics's picture

no shit, they are the "criminal cabel". Try and keep up.

Wed, 06/19/2013 - 10:42 | 3671283 CHX
CHX's picture

Gold will be up at 2:00

Gold will be down at 2:00

Wed, 06/19/2013 - 11:04 | 3671349 Al Huxley
Al Huxley's picture

I expect it will be 1375 at 1:59 and 1312 at 2:01,but I don't know where it will be at 2:00.

Wed, 06/19/2013 - 10:43 | 3671290 RhoneGSM
RhoneGSM's picture

Repeat after me: There is no voluntary exit from ZIRP.

Wed, 06/19/2013 - 10:43 | 3671291 davinci7_gis
davinci7_gis's picture

I guarantee you this...whatever they say will either be oblivious or will be composed of statements on both sides of the "taper" "not taper" side of the equation....just to confuse us all even more!

Wed, 06/19/2013 - 10:44 | 3671294 Midasking
Midasking's picture

THEY HAVE BEEN IN A BOX FOR OVER A DECADE! I CAN'T TAKE THIS NONSENSE ANY LONGER! http://tinyurl.com/mem7o7x

Wed, 06/19/2013 - 10:44 | 3671299 FieldingMellish
FieldingMellish's picture

Money velocity.... the monster being surpressed. Once unleashed, no central bank talking will change the outcome.

Wed, 06/19/2013 - 10:45 | 3671302 kito
kito's picture

I just took red pill antidote.....I have at least $500,000 and I'm investing it with Ken Fisher....he seems smart.....he's in Forbes......

Wed, 06/19/2013 - 10:47 | 3671308 fonzannoon
fonzannoon's picture

such a nice boy that Ken Fisher.

Wed, 06/19/2013 - 10:51 | 3671318 kito
kito's picture

And so successful!!!! Fonz I'm growing weary of all this shit.....I'm on a mental hamster wheel.........I can't take another fed announcement......

Wed, 06/19/2013 - 11:02 | 3671346 fonzannoon
fonzannoon's picture

I am on the phone with a client. Have CNBC on mute. In the backround I see Santelli throwing a garbage pail and yelling. Funny shit.

Wed, 06/19/2013 - 11:18 | 3671437 WillyGroper
WillyGroper's picture

It was a pretty good rant!

Wed, 06/19/2013 - 11:39 | 3671492 spine001
spine001's picture

Dear Kito, I've been following your comments and you like many others deserve better. You haven't asked for advice so I won't give it. I don't even know if you were being sarcastic or not about giving your hard earned money to Fisher. I've had the pleasure of being acquainted with some incredible people that gathered fortunes on the order of hundreds of millions. They were incredible people, that you'd follow anywhere and they gathered their fortunes by producing wealth to society, all of them had wills stating that their money was going to charities and very little to their heirs. And they started the process of divesting early on in their lives. Some of this, semingly extrange people, given todays events, made their fortunes administering other people's money in an incredible ethical and efficient way, really working on it. Obviously they were the exceptions. What is my point? Well, that in the 2010 those incredible exceptional people started disolving their investment funds and hedge funds returning the money to  their investors, against their will. This came out in the news, but what didn't come out was that they were doing it because they knew that in good conscience they couldn't keep wealth that they couldn't protect, no matter that they were getting 2% off the top and a % of the income. They returned the money! I don't know of any of the good ones that are lelft.

We may not know what is coming or when (chaos theory), but we know that it will bifurcate (fractal behaviour) and that those bifurcations will entail large, very large bouts of inflation (as money velocity picks up as another commenter mentioned in this post). I lived during hyperinflation (1988-1989) in Argentina and let me tell you, you could barely defend your capital, fighting with nails and teeth, NO way you could defend anybody else's capital, just impossible, this is one of those cases where you need to you NPV and not IIR, since IIR assumes infinite reproducibility and scalability of the projects and during hyperinflation this stop completely from being true. My life experience tells me that only you will be able to protect yourself. If you can't you are out of luck. :(

Sad state of affairs for the world.

Warm regards,

Engineer

Wed, 06/19/2013 - 11:47 | 3671570 Bay of Pigs
Bay of Pigs's picture

Interesting. So, those of us who have suggested to kito to buy some gold as insurance against the back drop you just described weren't doing him a favor?

The time is coming when holding some physical gold and silver will be one of your last lines of defense and protection.

 

Wed, 06/19/2013 - 12:02 | 3671663 spine001
spine001's picture

I am talking about giving your money to people that invest it for you. If you do that, all you'll get is that they will save themselves at your expense. Your advice about Gold or PMs, there is no way I can say it is bad. Since I don't know (and nor does anybody else due to the chaotic nature of the system (mathematical chaos)) what trajectory we will follow from the current attractor we are at today to the next attractor (nor does anybody know what they next attractor will be, since it is a mathematical impossibility to know), there is no way I can tell you what to do to hedge yourself with hard assets. All I can tell you is that what will protect you the most is your ability to deliver value ot society and to protect those who do that (military training, weapons, operations, management, leadership skills, productive assets -i.e. munition fabrication, food production, health care delivery, etc.).

Until next time,

Engineer

Wed, 06/19/2013 - 12:36 | 3671828 kito
kito's picture

Thanks for the insight Engineer.....

Wed, 06/19/2013 - 17:42 | 3673268 Bay of Pigs
Bay of Pigs's picture

Yes, good stuff. Thanks.

Wed, 06/19/2013 - 17:43 | 3673273 fonzannoon
fonzannoon's picture

Oh cut the crap guys, Kito just wants to come off confused and make it look like I took advantage of him when it's time for my sandwich.

Wed, 06/19/2013 - 10:51 | 3671316 aheady
aheady's picture

Here's my dick in a box, Fed.

Wed, 06/19/2013 - 11:36 | 3671537 tunnelvizn
tunnelvizn's picture

Ah, da junk trunk .

Wed, 06/19/2013 - 11:49 | 3671595 Agent P
Agent P's picture

Step 1: You cut a hole in the box...

http://www.youtube.com/watch?v=WhwbxEfy7fg

 

Wed, 06/19/2013 - 11:02 | 3671345 holdbuysell
holdbuysell's picture

The exit strategy is....there is none. It's every central banker for himself.

(Inspired by the opening of the Chinese Downhill scene in Hot Dog).

Wed, 06/19/2013 - 11:05 | 3671351 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

The correct answer is that the fed says, "rates may rise soon, but also might not and might fall and tapering may start in a month or so, but maybe later".

 

This will cause Bloomberg to print, "gold seen falling significantly on talk of interest rate rise and tapering".

Wed, 06/19/2013 - 11:08 | 3671367 Zen Bernanke
Zen Bernanke's picture

How anyone ever connected the unemployment rate with monetary policy is beyond me.  

Wed, 06/19/2013 - 11:33 | 3671518 nope-1004
nope-1004's picture

There is no connection.  It's a lie and PR stunt to make the masses "accept" a privately owned cabal running your financial lives, making you believe they have your back.  They don't.  They lie, steal, and above all, abuse those that have an honest pair of hands.

Fuck the Fed.  They can go to hell.

 

Wed, 06/19/2013 - 11:11 | 3671389 sbenard
sbenard's picture

I've been saying for months that the Fed has painted us into a corner. There is no painless way out!

If the Fed allows interest rates to rise, then it will kill housing (again), cause corporate earnings to collapse under the weight of higher business costs, create a wave of new credit card defaults, and quickly explode the deficit again due to the crush of a ballooning interest expense that consumes most of the tax revenue. And as we create an ever-bigger black hole of debt, those interest costs will only continue to rise!

If the Fed allows inflation to surge instead, then the lower and middle classes will be annihilated as we are crushed by the high cost of living!

Wed, 06/19/2013 - 11:15 | 3671415 sbenard
sbenard's picture

Wall St is addicted to monetary heroin! Time to tie them to a bed and go cold turkey!

Wed, 06/19/2013 - 11:20 | 3671448 Fuh Querada
Fuh Querada's picture

Expected is a re-affirmation of the previous contradiction of the denial of the intention to reconsider whether to deny or confirm the expectation of non-tapering.

(repeat post but I couldn't resist)

Wed, 06/19/2013 - 12:47 | 3671872 Cosmicserpent
Cosmicserpent's picture

Why doesn't his matrix include an immediate start to tapering, say a decrease of $5Billion a month, with a torrent of verbal, word cloud diarrhea of no raising interest rates for the foreseeable future?

The fed is in a box, but it is the same box it's been in for years. The only change is that the Fed is recognizing monetary policy is like any drug-- a little cures, a lot kills.  If they don't reduce the drug flow NOW, they risk killing the patient. 

Or else a full on Fed Bukkake goes pedal-to-the-metal  Abenomics and fucks the world at light speed.

Wed, 06/19/2013 - 12:52 | 3671894 Hongcha
Hongcha's picture

Bureaucrats fiddle while the country burns.  Discussion as to whether inflation is strong enough ?!  They will persist up to the moment the door bursts open and the peasants roll in with torches and pitchforks. Hopelessly lying fuckmonkeys.

Wed, 06/19/2013 - 13:26 | 3672038 wisefool
wisefool's picture

1:59:59:9999 LOL Tyler. you realize that the Fed statements are literally FAXED to the speaker. Probably on a 2400baud thermal paper dinasour whose timestamp clock stopped flashing 12:00 about 10 years ago when the internal battery died.

There is a reason the former NY Fed Govenor Timmay could not operate TurboTax properly.

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